Monday, August 10, 2009

Electrifying cars: How three industries will evolve

The article is quite extensive, the registration is free.From the McKinsey Quarterly:

Upon entering the mainstream—in a few years or a couple of decades—electrified cars will transform the auto and utilities sectors and create a new battery industry. What will it take to win in a battery-powered age?

It’s a safe bet that consumers will eventually swap their gas-powered cars and trucks for rechargeable models. Electrified transport, in some form, would seem to be in our future. But how long will investors have to wait for the bet to pay off? Years? Decades?

Bears would bet on decades. For the next ten or so years, the purchase price of an electrified vehicle will probably exceed the price of an average gas-fueled family car by several thousand dollars. The difference is due largely to the cost of designing vehicles that can drive for extended distances on battery power and to the cost of the battery itself. What’s more, the infrastructure for charging the batteries of a large number of electrified vehicles isn’t in place, nor is the industry tooled to produce them on a mass scale. In any case, consumers aren’t exactly clamoring for battery-powered sedans (see sidebar “From well to wheel”).

Bulls are betting on interference by government. They think that concern over energy security, fossil fuel emissions, and long-term industrial competitiveness will prompt governments to seek a partial solution by creating incentives—some combination of subsidies, taxes, and investments—to migrate the market to battery-powered vehicles. In fact, governments across many regions are starting to act in this way. The bulls also note that electrified vehicles can address certain niches whose economics could be favorable more quickly, such as delivery and taxi fleets in large cities or elements of military fleets. In some countries, such as Israel, electrified vehicles already make economic sense because buyers get substantial tax breaks from the government. The bulls include innovators preparing new products and business models (such as the packaging of battery leasing and recharging costs) designed to make electrified vehicles more attractive to buyers.